Jan 12 (Reuters) – U.S. airlines’ profits will come under pressure in 2023 as they seek to shell out more cash to retain pilots amid concerns about the impact of a potential downturn on travel demand.
Major airlines such as United Airlines Holdings Inc (UAL.O), American Airlines Group Inc (AAL.O), Delta Air Lines Inc (DAL.N) and Southwest Airlines Co (LUV.N) have rushed to add staff after a quicker than expected rebound in the US travel market
Some airlines have had to award one-off contracts to pilots, stoking concerns about rising costs as they recover from the pandemic when saddled with a heavy debt load.
“Margins will take a hit in 2023 as airlines ratify new contracts with labor groups,” Cowen analyst Helane Becker said last month.
“We expect pilot pay, which accounts for approximately 40% of labor expenses, to increase 20-30% with the new agreements.”
In a recent note, BofA Global Research estimated that the industry will need to hire around 5,200 pilots per year between 2024 and 2030.
THE CONTEXT
Last month, Delta offered a 34% pay increase to pilots, what aviators from rival airlines called a new “benchmark.”
“Delta’s recent tentative pilot deal, assuming ratification, could increase incremental unit costs by ~2% and a further 2-3% for American, Southwest and United,” Barclays analyst Brandon Oglenski said Wednesday.
While costs take center stage, robust travel demand, fueled by a pent-up desire to venture out and family savings built up during the pandemic, could provide some relief.
Investors will be seeking comment from executives on whether the suit holds up, starting with Delta, which reports results on Friday.
American Airlines on Thursday forecast higher fourth-quarter profit as the Texas-based carrier benefited from strong travel demand during the key holiday season.
Shares of American Airlines, Delta Air Lines, United Airlines and Southwest Airlines all fell between 14% and 30% in 2022 on mass cancellations and economic concerns.
FUNDAMENTALS
* Analysts estimate United Airlines’ fourth-quarter revenue to rise 49% when it reports results on January 17; earnings per share are estimated at $2.15
* Analysts estimate American Airlines’ fourth-quarter revenue to rise about 35% when it reports in the next two weeks; earnings per share are estimated at $0.60
* Analysts estimate Delta Air Lines’ fourth-quarter revenue to rise about 29% when it reports Jan. 13; earnings per share are estimated at $1.26
* Analysts estimate Southwest Airlines’ fourth-quarter revenue to rise about 24% when it reports Jan. 26; earnings per share are estimated at $0.33
WALL STREET FEELING
* For American Airlines, two of 20 brokerages rate stocks “buy” or higher, 15 “hold” and three “sell” or lower; his median price target is $15, according to Refinitiv data
* For United Airlines, 12 of 21 analysts rate the stock “buy,” six “hold” and three “sell”; your median price target is $51
* For Southwest Airlines, 15 of 21 analysts rate the stock a “buy,” six “hold”; his median price target is $44
* For Delta Air Lines, 18 of 20 analysts rate the stock a “buy,” two “hold”; his median price target is $46
Reporting by Aishwarya Nair and Kannaki Deka in Bengaluru; Edited by Shounak Dasgupta
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